The Student Stock Market

I’m thinking this is a win-win proposition: Why can’t we invest in individuals in the same way we invest in companies in the stock market?

I’ve been toying with this idea for a few days now, and a comment on yesterday’s blog post made me want to write about it today. The comment mentioned a scholarship program (link broken) in which you “invest” in talented young people so that they can afford to go to college, and many of them end up being donors to the program after they’ve achieved success.

I think that can be taken a step further, beyond mere philanthropy. This is a very rudimentary version of how I see this happening:

From an investor’s standpoint, you would have access to a vast portfolio of high school seniors in whom you could invest (the students have opted into the investment portfolio). Most of the data about the students is quantifiable: GPA, standardized test scores, extracurriculars, etc. Students could also submit 2-minute pitch videos and/or essays.

The government has a formula for determining student aid, and from that formula you’d derive how much money each student would need depending on the school they attend. So say John Parker has selected Stanford as his university of choice, but he needs $20,000 a year to attend. If you like John’s potential, you could invest all or part of that money, and John could avoid taking on federal or private loans.

For four years, you wouldn’t reap any dividends from your investment beyond good feelings. But then he graduates and gets a job (sure, he might go to grad school too–there would have to be stipulations about that). Out of every paycheck he receives, you get a cut based on the amount of money you originally invested in him. It’s risky for you, because John could go downhill in college and never make a decent wage, but there’s also the chance that he’ll get a great job or start a huge company, and you’ll reap the dividends of your investment.

How long would you reap those dividends? I’d say quite a while, especially since it’s only good for the benefactor if you make a return on your investment.

You might be wondering, why doesn’t the student just take a loan, even a private loan? Because it’s much less risky for them. If they take an $80,000 loan with 6% interest after college, no matter what job they get, they have to pay off $80,000 (plus 6%). Which the investment option, the amount that they pay depends on the amount that they make. They may end up paying less than $80,000 or they might pay significantly more. But the latter only happens if they’re making big bucks.

I truly think this would be good for everyone. Wouldn’t it be great for individual students, especially poorer ones, to know that someone out there believed in them enough to invest in them. And wouldn’t it be neat for regular guys and gals like you and me to be able to invest in our future, even if we’re just chipping in $500 or so?

Interesting! I am curious about how the implications of being tied to people financially might affect their life choices. (for better or worse) It might be a little intense for an 18 year old to feel beholden to people (because they might not fully comprehend how investing works) as they navigate choosing a major, whether they care about making lots of money or not, etc.

When the time comes for them to switch careers or they get laid off or something else, I wonder if the stress would be better or worse knowing people had invested in you instead of a loan? Hard to say, probably depends on the person!

Emma–Definitely, I could see the stress going both ways. But I figure it’s much better than someone paying 20% on their credit card to pay off their private loans even though they don’t have a job–since the dividend system here would be based on your W-2, if you’re not making an income, you’re not paying anything to the benefactor.

I certainly think it could complicate major decisions if the benefactor wants to be really involved in the person’s life. But as long as you have clear expectations, I don’t think it will be an issue. Thousands of millionaires invest in tons of startups every year as angel investors, and their attitude is usually that 9 out of 10 won’t make them any money, but that 10th one will. They aren’t hands on–most of them sit back and just let the startups try to be successful. I think the benefit (having a connection to benefactors who can help you network) would outweigh the downside.

Agreed, if expectations were clear (and understood thoroughly) then it would be way cool! I was picturing some bleeding heart donors wanting to be involved/kept up-to-date and some kids feeling beholden and pressured, but a really thorough setup process could eliminate that. What a concept!

As a follow-up, lots of families have tension during wedding planning because the couple feels obligated to have parental approval over their choices. I wonder if that same sentiment/conflict could arise? (but could provide mentoring opportunities as well?)

This is pretty cool. It’s better to benefit some individuals better than benefiting the big banks/loan sharks.

And I just thought of a movie idea. Multi-billionaire, Max Hagens, needs to find a heir to pass on his business empire and avoid internal conflicts that can destroy everything. Through Stegmaier’s Future, a investment firm that matches the young, bright minds with their education and future careers with their investors, Max Hagens has chosen four. Who will be the one? And will the heir be his savor or his destroyer? (Cue music)